Melissa Kozicki from Mortgage Cadence–How Compliance Enables Innovation and Optimization

Melissa Kozicki is director of compliance at Mortgage Cadence

For too long, compliance has been viewed as a constraint–a set of rules and regulations that restrict innovation and hamper business growth. Just ask any compliance expert how it feels to walk into a crowded conference room. The idea that compliance is a “downer” is an outdated mindset that is putting limits on industry lenders and servicers that they simply cannot afford in a down market.

When viewed through the right lens, compliance can be an empowering force that unlocks new opportunities through new products, increased efficiencies and process optimization.

Rethinking Compliance’s Reputation

In the years following the 2008 financial crisis, lenders became hypersensitive to compliance risk, with plenty of good reasons.

A wave of new regulations conditioned the industry to an extreme degree of risk aversion. Over a decade of reactive responses to changes like Dodd-Frank, revised disclosure rules, and TRID dampened the drive for proactive growth. This risk aversion was heightened by the fervor with which some regulators approached those suspected of compliance errors.

This mindset of being reactive rather than proactive was an understandable response for the time given the reputational damage and punitive fines levied for non-compliance coupled with the sheer volume of changes unleashed by Dodd Frank. However, remaining in that reactive mindset leaves significant pockets of opportunity untapped.

Innovative New Products

So how can a lender approach what has long been considered a barrier to activity as a source of inspiration for future innovation?

Limited English proficiency (LEP) lending is a prime example. For years, marketing mortgages to non-English speakers seemed too legally risky for most lenders. But pioneering firms are now tapping this lucrative market by strategizing how to operate responsibly within existing frameworks rather than waiting for explicit regulatory guidance.

This represents a pivotal shift in compliance mentality. Forward-thinking compliance leaders are seeing opportunities to discover new spaces where underserved populations can be helped through responsible innovation.

The same opportunistic lens can be applied across the industry. Niche products like construction loans and HUD 184 mortgages offer significant growth runways. But capitalizing on these opportunities requires viewing compliance as more than a check-the-box exercise siloed away from core operations. It must become a strategic enabler tightly integrated across the business.

Making this pivot requires leadership buy-in to set the appropriate organizational risk tolerance and empower the compliance function to identify pockets of opportunity.

In today’s fiercely competitive mortgage environment, dynamic risk management through an opportunistic compliance lens is a competitive advantage. Those who get it right will be empowered to find new profitable markets and products.

Enabling Efficiencies

There are other ways compliance can aid lenders in a challenging market. When mortgage revenues are plunging and cost-cutting is imperative for businesses, compliance departments are rarely viewed as sources of newfound efficiencies. However, this is another perception that is flawed and self-limiting. An opportunistic compliance approach can streamline operations and unlock higher performance.

To accomplish this, lenders must acknowledge compliance’s potential not just for enforcement, but as a catalyst for optimizing and re-engineering outdated processes. Ignoring for the moment the fear that comes with the word “re-engineering,” rules and regulations shouldn’t be viewed as shackles, but rather as guideposts for productive iteration.

This starts with acknowledging that longevity doesn’t equate to optimality. Just because practices have been institutionalized for decades doesn’t make them streamlined and probably just means they can be improved with new technology and updated guidance. In fact, the longer a process has been in place the more urgent the need for review – most likely layer upon layer has been added as new requirements are released rather than reengineering existing processes to keep them as lean and efficient as possible. As organizations evolve their products, channels, and business mix, it creates the imperative to revisit legacy processes through a modernized compliance lens.

Top compliance leaders excel at “operationalizing” rules – translating regulations into efficient execution rather than just policing them. They eagerly examine minute operational decisions and pressure-test whether those choices still make sense for today’s realities. New distribution channels or amended regulations often expose opportunities to consolidate and streamline activities in a compliant manner.

This isn’t about loosely interpreting rules or winging it based on assumptions. It requires deepening expertise to identify non-compliant practices, and then applying that mastery to construct optimized processes aligned with the latest guidance.

Compliance champions leverage their regulatory knowledge to navigate uncertainties, engage authorities for clarification, and drive conversations around what’s truly permissible versus what’s flawed conventional wisdom. With evolving guidance, opinions and even blogs from the regulating agencies it is unrealistic to think that what you were doing yesterday is going to be suitable for tomorrow.

Compliance-Powered Optimization

Such compliance-powered optimization is especially crucial when mortgage markets turn and revenues plummet. When all the pricing and staffing levers have been pulled, optimizing processes offers one of the few remaining avenues for controlling costs.

Compliance’s embedded knowledge provides an invaluable vantage point for pinpointing bloat, redundancies, underutilized capabilities and replacing manual efforts with cutting edge technology. Their cross-functional purview allows them to lead continuous improvement charges.

To be sure, there will always be relatively unchanging compliance activities like loan audits, documentation reviews and drafting of policies & procedures. These are the unglamorous counterweights to driving strategic efficiencies. But, perhaps strangely, that compelling duality is part of what draws many into the compliance field.

Balancing high-level systemization with granular operational optimization in pursuit of quality loan production and organizational health is a unique challenge. Elite leaders don’t just enforce rules, they leverage compliance as a catalyst for enhanced effectiveness across an enterprise. Simply checking boxes misses the opportunity.

Achieving compliance mastery empowers the ability to streamline processes, remove wasteful spending, secure competitive advantages, and facilitate long-term business resilience. It’s not an obstruction to efficiency, but an enabling framework for realizing it when applied proactively. Compliance can cut costs and open new doors to opportunity – that paradigm shift in thinking unlocks its potential.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)